Establishing and maintaining a good credit record takes time and can be challenging when times get tough (financially). Paying your debt on time will help you develop a good credit history and will help enable you to obtain additional credit in the future.
If you've never bought anything on credit, consider applying for a business loan or business credit card to establish a credit history for your business. Then build a track record! Make sure you only spend as much as you can pay back, which will show that you are responsible about handling money and take your debts seriously.
If you have problems establishing credit, you may have to ask some who has credit to co-sign an application for you. This allows the creditor to base the decision on both of your credit histories. Make sure you read your loan agreement to understand your repayment obligations.
Usually both people who sign the loan agreement are equally responsible for repayment of the full debt. This means that even if someone co-signs a loan with you, you are still responsible for the full amount of the loan. Payment history on this type of debt may be reflected on both parties’ credit reports.
Once timely payments have been made on the account, you may again wish to apply for individual credit.
Once you've established your credit rating, be sure to keep it spotless:
- Most importantly, pay your accounts by the due dates. If you can't, make alternative arrangements with the credit provider and then try to catch up with your payments as quickly as possible.
- Don't take out too much credit. If you have a lot of debt, your credit score will suffer. In general, try to use no more than 50% of your credit. Remember, the more debt you have, the higher your risk for defaulting when a crisis hits
- Ensure that your credit report is accurate by contacting a credit bureau, of which there are a few reputable ones in South Africa. If you find a mistake on your credit report, have it corrected immediately
If you are declined credit, find out why. You could be turned down for various reasons, including not meeting the creditors' minimum income requirement or not having been at your current residence or job for the required amount of time.
Originally published on the SME Toolkit South Africa website.